Assume that you would like to purchase 100 shares of preference shares that pays an annual dividend of R6 per share.However, you have limited resources now, so you cannot afford the purchase price.In fact, the best that you can do now is to invest your money in a bank account earning a simple interest rate of 6 percent, but where interest is compounded daily (assume a 365-day year).Because the preference shares are riskier, it has a required annual rate of return of 12 percent (assume that this rate will remain constant over the next 5 years).For you to be able to purchase this share at the end of 5 years, how much must you deposit in your bank account today, at t = 0?

Question

Quizplus · Accepted Answer

The Answer of Assume that you would like to purchase 100 shares of preference shares that pays an annual dividend of R6 per share.However, you have limited resources now, so you cannot afford the purchase price.In fact, the best that you can do now is to invest your money in a bank account earning a simple interest rate of 6 percent, but where interest is compounded daily (assume a 365-day year).Because the preference shares are riskier, it has a required annual rate of return of 12 percent (assume that this rate will remain constant over the next 5 years).For you to be able to purchase this share at the end of 5 years, how much must you deposit in your bank account today, at t = 0?

Assume That You Would Like to Purchase 100 Shares of Preference